Correlation Between PennyMac Mortgage and VIRG NATL

Can any of the company-specific risk be diversified away by investing in both PennyMac Mortgage and VIRG NATL at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining PennyMac Mortgage and VIRG NATL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PennyMac Mortgage Investment and VIRG NATL BANKSH, you can compare the effects of market volatilities on PennyMac Mortgage and VIRG NATL and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in PennyMac Mortgage with a short position of VIRG NATL. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennyMac Mortgage and VIRG NATL.

Diversification Opportunities for PennyMac Mortgage and VIRG NATL

-0.29

Correlation Coefficient

PennyMac Mortgage  VIRG NATL

Very good diversification

The 3 months correlation between PennyMac and VIRG is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and VIRG NATL BANKSH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIRG NATL BANKSH and PennyMac Mortgage is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on PennyMac Mortgage Investment are associated (or correlated) with VIRG NATL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIRG NATL BANKSH has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and VIRG NATL go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and VIRG NATL

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.45 times more return on investment than VIRG NATL. However, PennyMac Mortgage Investment is 2.22 times less risky than VIRG NATL. It trades about 0.15 of its potential returns per unit of risk. VIRG NATL BANKSH is currently generating about -0.09 per unit of risk. If you would invest  1,228  in PennyMac Mortgage Investment on December 4, 2024 and sell it today you would earn a total of  142.00  from holding PennyMac Mortgage Investment or generate 11.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

PennyMac Mortgage Investment  vs.  VIRG NATL BANKSH

PennyMac Mortgage

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennyMac Mortgage may actually be approaching a critical reversion point that can send shares even higher in April 2025.

VIRG NATL BANKSH

Risk-Adjusted Performance

Very Weak

Over the last 90 days VIRG NATL BANKSH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PennyMac Mortgage and VIRG NATL

The main advantage of trading using opposite PennyMac Mortgage and VIRG NATL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PennyMac Mortgage position performs unexpectedly, VIRG NATL can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in VIRG NATL will offset losses from the drop in VIRG NATL's long position.

The idea behind PennyMac Mortgage Investment and VIRG NATL BANKSH pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.